Madhya Bhotekoshi Jalavidyut Company to issue 15 Million units IPO soon; Care Ratings grades the issue

CRNL has assigned ‘CARE-NP IPO Grade 4+’ to the proposed Initial Public Offering (IPO) of Madhya Bhotekoshi Jalavidyut Company Limited (MBJCL). ‘CARE-NP IPO Grade 4+’ indicates Below Average Fundamentals. The grade assigned to any individual issue represents a relative assessment of the ‘fundamentals’ of the issuer. MBJCL is proposed to issue 15 Million equity shares having face value of Rs.100 each at par aggregating Rs.1500 Million representing 25% of total capital reserved for project affected locals (10%) and general public (15%).

The grading assigned to MBJCL is constrained by project implementation risk -delay in execution of project and cost overrun, decrease in project life leads to low return from project, exposure to fluctuation in the foreign currency exchange rates for the unhedged contractual liabilities, financial closure not achieved for revised project cost, exposure to volatile interest rates, power evacuation risk and exposure to regulatory risk. The grading also factors in hydrology risk associated with run-of-the-river projects. The grading, however, derives strength from strong promoter group and management expertise in operating hydro power projects, power purchase agreement (PPA )with sufficient period coverage, moderate counter party risk, fixed priced civil & hydro-mechanical, electromechanical and transmission line contracts, shortage of power in the country and government support for the power sector.

Madhya Bhotekoshi Jalavidyut Company Ltd. (MBJCL) is a public limited company incorporated on July 29, 2010. It is promoted by NEA (a GoN Corporation) and Chilime Hydropower Company Limited (CHCL, 51% subsidiary of NEA) for setting up 102 MW run-of-river, Middle Bhotekoshi Hydroelectric Project in Sindhupalchowk district of Nepal. The project include headrace tunnel and penstock pipe of 7125 meters and 730  meters respectively. The project is constructed under BOOT (Build, Own, Operate and Transfer) mechanism. As per the Generation License, from GoN –Ministry of Energy, dated December 3, 2013, the project shall be handed, on whatever conditions the project is, to the Government of Nepal after expiry of Generation License, which is 35 years. The paid up capital of the company is proposed to be Rs.6.00 Bn which will be held by promoters and public in the ratio of 51:49.

Source: Care Ratings Nepal